The Dubai courts, in their three levels (first and second instances – and Dubai court of cassation), have ruled in favor of investors/buyers against certain real estate developers. In a new ruling, the Dubai court of cassation ruled in favor of the buyer by canceling the sale/purchase agreement and obliging the developer to refund the full sale price, in addition to compensation for lost profits, delayed and legal interest. This ruling was made on the grounds that the increase in the unit's area was significant and altered the essence of the buyer's intentions, constituting a change in the nature of the agreement and deviating from the increase intended by the legislator. The court considered this a substantial change to the terms of the contract, particularly the expanded area and price, which deviated from what was agreed upon in the contract forming the basis of the dispute, leading to its dissolution. The court also highlighted that the increase in the area and its value should be equivalent to another comparable unit, and that the agreement should not exceed what the buyer had originally agreed upon or intended. This ruling favors our client, the plaintiff, in requesting the cancellation of the sale agreement.
This is the first ruling of its kind, where the court addressed the issue of some developers exploiting buyers using Dubai's real estate laws as a pretext for disputes over property area, aiming to unjustly retain buyers' funds/investments.
The reasoning behind the ruling was insightful and aligned with the defense presented by the BLK team, as stated the following:
"Regarding the subject of the lawsuit, it was determined that the legislator has set forth the legal rules that can be referred to in determining the seller's obligations and the transfer of ownership when registering and recording real estate or property units subject to registration, as per Article 12 of Law No. 13 of 2008 concerning preliminary registration in Dubai, and the corresponding Article 13 of its executive regulations, issued by Decision No. 6 of 2010. According to these provisions, the property unit's registered area at the time of registration is considered valid, and any increase in the area after delivery shall not be acknowledged. The developer cannot claim any additional value due to such an increase. The area recorded at the time of registration shall be considered the correct one.
This applies to sales of units that are indicated on a map but have not been constructed yet or are under construction. The agreement to define the sale price must clearly stipulate the unit's area, with the unit price calculated according to the agreed-upon specifications. This ensures that the value remains based on what was originally agreed upon between the contracting parties, and any increase or decrease in the unit's area must be mutually agreed upon, along with the resulting price adjustment. If the contract does not include such an agreement and no prior legal framework exists, the ruling shall be based on the applicable legal provisions. This includes the necessity of separating what is prescribed by law in terms of regulations and rules governing the specification of the property's area, along with the seller's obligations to perform under the contract, as mandated by the law."
Since that was the case, and since the Plaintiff/our client filed the lawsuit on the grounds that the Defendant violated the agreement, particularly by altering the description and area of the hotel unit in accordance with the terms of the contract, in addition to the delay in completing the project, it was established, upon reviewing the rest of the case files and the expert's evaluation, that the Plaintiff had purchased a hotel unit with a specified area (as stated in the definitions clause - area). However, the Plaintiff refused to accept the unit after receiving a letter from the Defendant stating the necessity of paying double the amount for which the unit was purchased. The developer justified this demand by citing the increase in the unit.
Since that was the case, and as is established in Article 9, Paragraph (C) of the sale contract:
"The buyer acknowledges and agrees that the seller has the right, at its discretion, to make any changes to the real estate plan as necessary or desirable under the circumstances, without altering the price, in the event that the final building area differs by no more than 5% compared to the theoretical area based on the design and the actual building measurements. In this case, the buyer shall have no claims against the seller for any discrepancy in the size of the property, and the seller shall not benefit from any increase in the size of the property. The parties agreed that if there is a discrepancy in the final floor area of the property (as determined by the seller) exceeding 5% of the estimated property area, the price shall be adjusted accordingly based on the difference, either by an increase or a decrease. Any increase in the amount shall be due and payable with the final payment for the price, upon notification to the buyer."
The court concludes from this, exercising its authority to interpret contracts and documents, that the increase agreed upon by the buyer, as stated in the contract—wherein the seller has the right to make such changes as necessary or desirable under the circumstances and in accordance with the official requirements of the authorities granting the necessary permits and approvals for the project—was not challenged by the defendant. The defendant did not demonstrate that the modifications introduced were necessary and essential. Additionally, the increase in the description of the unit made by the defendant, as reported by the expert in his report, shows that the increase in area nearly doubled.
The court considers that the percentage increase is significant and disrupts the purpose of the buyer's agreement, altering the essence of the contract and deviating from the increase intended by the buyer in the agreement. The court regards this as a change in the terms of the contract due to the doubling of the area and price, which the parties had agreed upon. The court concludes that such an increase in area and value corresponds to that of another similar unit and does not alter the substance of the contract. However, the defendant's argument, that the buyer agreed to the modification of the designs as mentioned in Article 9 of the contract, is rejected, as the increase deemed by the parties to be necessary or desirable should not deviate from the essential terms of the agreement or the buyer's intent when purchasing the unit. This leads the court to rule in favor of the claimant's request for the annulment of the sales contract.
The judge has full authority to determine the value of compensation, particularly since the defendant failed to fulfill their obligations by altering the unit's area, which prevented the buyer from benefiting from it. This alteration led the court to annul the contract. The judge found that the error caused harm to the plaintiff, including the deprivation of investment opportunities from the unit, which was initially intended to generate profits, as well as the non-investment of the amount paid for the unit. Consequently, the court awarded the claimant a compensation amount, which accounts for all material damage suffered. The defendant is obliged to pay this sum along with an annual interest rate of 5%.
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